Manufacturing Sales Report - December 2017

Sales fall in December but manufacturing output hits an all-time high in 2017

After a strong November, manufacturing sales across Canada dipped slightly to end the year, as weakness in petroleum refining and food processing dragged down overall growth. All told, manufacturing output fell by 0.3 per cent in December, bringing total monthly sales to $55.5 billion.

Even so, December's production numbers were easily enough to push Canadian manufacturing output into record territory for 2017. Although there will be some minor revisions in the coming months, estimates of total manufacturing sales for the year came in at just under $649 billion - an increase of nearly 6.0 per cent compared to 2016 and well above the previous all-time high of $615 billion set in 2014.

The one significant caveat to that record performance last year is the fact that sales figures are unadjusted for inflation. To be sure, when the impact of price increases are taken into account, 2017 was still a good year for manufacturing. Real sales increased by 3.3 per cent - the strongest growth in seven years. However, inflation-adjusted manufacturing activity in Canada remains well below levels seen in the mid-2000s.

The short-term outlook for manufacturing suggests that production should remain relatively solid in the coming months. Led by the fabricated metals and machinery industries, new, non-aerospace manufacturing orders were up 0.8 per cent in December to reach $53.9 billion. In fact, new orders have been climbing more or less steadily for two years running. At the same time, there was a small increase of about 0.2 per cent in manufacturers' unfilled orders (not including aerospace), suggesting that manufacturers have not quite been able to keep pace with new demand growth.

While demand growth is healthy in general, there are signs of concern in a few specific industries that are rapidly stockpiling unsold goods. While there are notable buildups in plastics and rubber products and household goods inventories, the increase has been especially dramatic for Canada's forest products industries which have had their access to the US market dramatically curtailed in recent months.

Looking at output by industry, December's results were decidedly mixed. On the positive side, there was strong year-end growth in industrial production, as sales of machinery, aerospace, motor vehicles and parts, and computers and electronics were all higher. Those increases were offset, however, by declines in food processing and petroleum refining. Food producers saw overall sales fall by $227 million (2.6 per cent), while the decline in petroleum production was even more pronounced at $243 million (4.1 per cent). There were also smaller losses in primary and fabricated metals production in December.

At the provincial level, results were mostly to the negative in December, with the notable exception of Ontario, which singlehandedly offset most losses elsewhere. Production in Canada's largest province was up $311 million in December (a 1.2 per cent increase), building on a $1.5 billion surge in November when production finally resumed in earnest at the province's auto production facilities. December was also a good month in Manitoba, where sales were up 3.2 per cent, while Alberta was the only other province to see gains to end the year.

The seven remaining provinces all saw manufacturing output decline in December. The steepest drops were in Newfoundland and Labrador and in New Brunswick, where sales were down 20.2 per cent ($118 million) and 9.2 per cent ($172 million), respectively. In both cases the declines were tied to production interruptions at local oil refineries. There was also a notable decline in manufacturing activity in Quebec in December, where sales were down 1.1 per cent ($142 million).

Nevertheless, when all is said and done, 2017 was a good year for manufacturing across the country. All ten provinces saw annual sales increase compared to 2016. The biggest gains were in Canada' energy-producing provinces, all of which enjoyed double-digit growth. The down side is that, in all cases, this strong growth simply represents the partial recovery of steep losses in 2015 and 2016 because of the impact of lower oil prices on the value of petroleum refinery output.

In Canada's manufacturing heartland, 2017 was an excellent year in Quebec, where widespread gains drove total sales up by 8.5 per cent. For its part, a late-year surge helped Ontario salvage what was otherwise a disappointing year. Manufacturing sales there rose by just 1.6 per cent for the year - the slowest growth of any province across Canada.